Creditors of a bankrupt

Official Receiver or Insolvency Practitioner

You should be contacted automatically by the Official Receiver/Insolvency Practitioner (OR/IP), whoever is trustee, if he or she knows that you are a creditor.

If you believe an individual may be subject to bankruptcy proceedings and you have not heard from the OR or an IP - you can access the Insolvency Register for Northern Ireland via the Court Service website or alternatively you can contact the Bankruptcy and Chancery Office at the High Court, telephone number, 030 0200 7812. There will be a charge for this service.

If a partnership is involved, bankruptcy orders may have been made against the individual partners and details can be obtained as above.

Making yourself known as a creditor

You should write to the OR/IP dealing with the bankruptcy. You should supply the full name of the individual as well as your own details. You should inform the OR/IP if you change your address.

Contacting the OR/IP

You should write to the OR/IP if you have any information about the assets of the individual or about the conduct of the individual. This information may help the OR/IP in the recovery of assets or in his duty to report misconduct.

Information from the OR/IP

Do not expect to receive frequent reports from the OR/IP. Once your claim is filed with the OR/IP you will be notified automatically of any distribution made or that no funds are available and that the case is to be closed. It can take weeks, months or years (in some complex cases) to realise assets. If you are concerned, contact the OR/IP handling the case.

There are special rules about creditor's rights to receive information or to be called to meetings in other types of insolvencies. If you wish to find out about these rights you should consult the IP handling the case.

Bankruptcy procedure

Bankruptcy can only apply to individuals (including sole traders and individual members of a partnership).

Bankruptcy petitions may be presented to the court by the individual, by creditors who are owed £5,000 or more or by the supervisor of an individual voluntary arrangement (where the individual has not complied with the terms of the arrangement). A bankruptcy order is made by the High Court.

The Official Receiver initially acts as receiver and manager of a bankrupt's estate and will normally become trustee unless an Insolvency Practitioner is appointed in his place. The trustee realises any assets (except for certain assets which include basic domestic items needed by the bankrupt and his or her family and items such as vehicles, equipment, tools and books which are needed for the bankrupt's job). After the payment of fees and costs of the proceedings, the trustee distributes the remaining funds to the creditors in a strict order of priority.

Restrictions on a bankrupt

An undischarged bankrupt can trade after the bankruptcy order but there are restrictions.

If an undischarged bankrupt trades under a new name, he or she must disclose the old name (under which the bankruptcy order was made) to anyone with whom he or she does business. An undischarged bankrupt is not allowed to act as a director of a company or be concerned with its management, without leave (permission) of the High Court. An undischarged bankrupt can only obtain £500 of credit without informing those he or she is dealing with about the bankruptcy. An undischarged bankrupt has to seek permission from either the Official Receiver or the Court before he or she can leave Northern Ireland.

Prior to 27 March 2006, a bankrupt was usually discharged (freed) automatically from the restrictions of bankruptcy after three years. If a person had been bankrupt before (within the previous 15 years), he or she had to wait five years before applying to the High Court for discharge.

From 27 March 2006, a bankrupt will usually be discharged automatically from the restrictions of bankruptcy after 12 months, or earlier if the OR files notice with the Court. Most individuals who were undischarged bankrupts on 27 March 2006 will be discharged automatically on 27 March 2007 or sooner.

Also from 27 March 2006, a bankrupt may have a court order made against him or her (called a bankruptcy restrictions order) or give an undertaking to the Department which will mean that bankruptcy restrictions continue to apply after discharge for between two and 15 years.

Notification

The OR will normally notify all known creditors (within 12 weeks of the date of the High Court order) whether a meeting of creditors will be held. The OR will decide to hold a meeting if there are significant assets.

You will also be sent a report giving estimates of the insolvent's assets and liabilities and what the causes of the failure are considered to be. If you think that a bankrupt is withholding information about his/her assets, you should write to the OR.

Make a claim

To make a claim you should ask the OR/IP (Official Receiver/Insolvency Practitioner) for a proof of debt form and complete and return it to the OR/IP.

The form is sent to you along with the notice to creditors. Remember to sign the form. The OR will not normally send an acknowledgement. The rights of a creditor who holds a fixed charge on assets (such as a mortgage) to sell the asset to recover their debt are not affected by insolvency. The chargeholder is the first to get paid when the asset is sold. Any surplus will be handed over to the trustee/liquidator. When all the assets available to unsecured creditors have been realised, the trustee will distribute the proceeds in a strict order of priority as follows:

• the fees and charges of the bankruptcy
• preferential debts, which include wages owed in the four months before the date of the insolvency order and contributions to occupational pension schemes
• any creditor holding a floating charge over an asset, such as a debenture
• all unsecured creditors

Therefore, unsecured creditors will usually only be paid when the fees and charges of the insolvency procedures and the claims of secured and preferential creditors have been paid.

If full repayment of claims is not possible, payments are made in proportion to the value of each claim.

If a dividend is to be paid, all creditors whose addresses are known will be notified. If you have not already submitted a proof of debt, this may be your last chance to do so. If you submit your proof of debt after the dividend has been declared, you may lose your right to share in the money available at that time.

How much you are paid will depend on the amount of money that can be realised and the number of claims. If there are few assets, you may not receive anything.

You can get a list of creditors from the OR/IP. The OR/IP is allowed to charge a statutory fee for this service. The list will show how much each creditor is owed. You also have a right to inspect the High Court file unless the High Court directs otherwise. If a statement of affairs has been submitted, you will be directed to the High Court file for details of creditors and their claims.

When paying a dividend, the OR/IP can reject the whole or part of a creditor's claim. The OR/IP must provide reasons for doing so in writing. If you are dissatisfied with the decision on your claim, you may apply to the court for the decision to be reversed or varied.

Meeting of creditors

A first meeting of creditors is held so that the creditors can appoint an Insolvency Practitioner (IP) as trustee in place of the Official Receiver (OR).

This is likely to be the only meeting of creditors before the final meeting is called. If the OR does not believe the assets available are enough to attract an IP, the OR will send notice to all creditors that no first meeting is to be held and as a result the OR will remain trustee.

The OR must hold a first meeting if it is requested by one quarter in value of the creditors. If the creditors request a meeting, they will have to lodge a deposit for the costs of the meeting with the OR. If the creditors do not choose an IP, the OR can either:

• apply to the Department for the Economy asking it to make an appointment
• remain as trustee himself

The OR can also apply to the Department for the Economy when an appointment of an IP is needed in an emergency, for example to deal with urgent transactions involving assets. When this happens the IP must notify the creditors. This may be done by advertisement in a newspaper if the High Court allows, for example where there are a large number of creditors.

Further meetings of creditors (called general meetings) are sometimes held if the trustee wants to find out the creditors' wishes in any matter relating to the insolvency proceedings, or if requested by 10 per cent in value of the creditors.

Where an IP is trustee, a final meeting of creditors will be called (see details under 'Completion of the Case').

Voting and conduct

You can normally only vote at a meeting if you have returned your proof of debt to the Official Receiver/Insolvency Practitioner (OR/IP) within the time stated in the notice.

You can vote at the meeting without attending personally but you must also have submitted a proxy form. The form is supplied by the OR/IP at the same time as the notice calling the creditors' meeting and you must return it by the time specified. The proof of debt and proxy form must be signed by the same person. Voting at a meeting of creditors is by value, and is calculated by the amount of the creditor's claim that is admitted (accepted) by the chair of the meeting for voting purposes. The chair will check all the proofs of debt and proxy forms, and confirm the amount admitted for voting purposes.

Briefly, at a first meeting of creditors, the chair will check that everyone present is allowed to be at the meeting; s/he will explain the purpose of the meeting, and provide details about the insolvent's assets. The meeting then votes on the appointment of an IP as trustee or liquidator. A first meeting of creditors is not an opportunity for you to question the bankrupt/director (it is unlikely they will be at the meeting) or to discuss matters relating to the insolvency.

For an IP to be appointed by the meeting of creditors, there must be a majority in value of those present or represented (by proxy) voting for the IP.

Creditor's committee

A creditors' committee can also be appointed at a meeting of creditors unless the Official Receiver remains as trustee.

The committee supervises and assists the trustee on behalf of the creditors. In bankruptcies it is called a creditors' committee. The committee consists of at least three and not more than five elected creditors:

• an individual creditor who has been elected can act personally or appoint a representative
• you have a right to nominate yourself or any other creditor as a member of a committee - you can also vote for yourself
• a creditors' committee must approve certain actions proposed by the trustee. It agrees to carry on the bankrupt's business and brings or defends legal actions

Trustee costs

The Official Receiver's (OR) remuneration (that is, what the OR will charge for his services) as trustee is specified under the insolvency legislation.

An Insolvency Practitioner's (IP) remuneration as trustee is fixed by the creditors' committee. If there is no committee, it may be fixed at a meeting of creditors. The remuneration can be fixed as a percentage of the value of the assets or on a time basis. Any creditor, with the support of 25 per cent in value of unsecured creditors, can apply to the High Court for the remuneration to be reviewed if it is considered to be too high. If the creditors do not agree the remuneration, the IP will receive the same as would have been paid to the OR (a percentage fixed by the Insolvency Regulations, of assets realised and distributed).

The IP acting as trustee will be able to provide you with a guide as to how their fees will be calculated.

Completion of the case

If the Official Receiver (OR) is dealing with the case and you have sent in a proof of debt, the OR will inform you when he intends to apply (to the Department for the Economy) for release.

This means that the OR's role as trustee comes to an end. The creditors have a right to object to the OR's release.

Please note that the release of the OR as trustee is not relevant to and does not affect a bankrupt's discharge. Generally the OR's release can only be withheld if the OR has failed to realise assets that were available to be realised or has misapplied the proceeds of any assets realised.

You will be sent a summary of the OR's receipts and payments as trustee.

If an Insolvency Practitioner (IP) is dealing with the case and you have sent in a proof of debt, you will be sent a notice of the final meeting of creditors. At this meeting the IP will report on his or her conduct of the case and will give a summary of the receipts and payments. The creditors have a right to object to the IP's release.

Legal action against the bankrupt or trustee

After the date of the High Court order, unsecured creditors cannot take any action against the bankrupt without the consent of the Court. You must submit your claim to the trustee. You can apply to the Court if you are dissatisfied with the actions of the OR/IP.